Gaming magnate Adelson bets on himself to win Japan's casino race

February 25, 2014|Reuters

By Nathan Layne and Farah Master

TOKYO/MACAU, Feb 26 (Reuters) - Billionaire Sheldon Adelsonis willing to bet $10 billion that his Las Vegas Sands will become the leader in casino gambling in Japan, an offer hesays his competitors can't match. What remains to be seen iswhether one of the world's last great untapped gaming markets iswilling to bet on him.

For months, the chief executive of the world's largestcasino operator by market value has insisted he's the person tobeat in Japan as it moves closer to legalising casinos, withparliament expected to start deliberating an initial bill inMay.

Adelson's aggressive, go-it-alone strategy is, however,worrying lawmakers and businessmen who want domestic firms toplay a significant role in any casino business. At the sametime, rival operators including MGM Resorts International and Wynn Resorts and local firms like slotmachine maker Sega Sammy Holdings are also gunning hardfor the few licenses expected to be up for grabs.

"I think this process will be so extraordinarily clear,transparent, deliberate and organized that no amount of earlypioneering will carry the day," James Murren, chief executive ofMGM Resorts, told Reuters in an interview.

Adelson apparently disagrees.

In October, he told investors that anyone, includingpoliticians, would agree that Las Vegas Sands was in the poleposition, according to a transcript of an earnings call.

A month later, he gave a spirited presentation to HiroyukiHosoda, a heavyweight in the ruling Liberal Democratic Party andhead of an intra-party group promoting the casino bill. Adelsonwent through slide after slide, some with mock-ups of what hisresort might look like on Tokyo Bay, according to a person whoknows what happened at the meeting.

At the end of the pitch, Hosoda offered Adelson some advice,the person said. Hosoda told Adelson that Tokyo had its ownculture, and just replicating the type of complex Las VegasSands built in Singapore wouldn't necessarily work.

It was a gentle reminder that the government would have asay in what was built and by whom. It also reflected generalconcerns about Adelson's openness to local involvement, theperson said.

Adelson did little to dispel these concerns at a mediabriefing in Tokyo this week, saying he would prefer not to takeon equity partners. He also questioned the ability of theJapanese companies interested in casinos to take on the scale ofrisk required for the massive complex he wants to build.

"No one is talking about implementing foreign capitalrestrictions but many lawmakers in the casino group wantJapanese companies to have the opportunity to invest. They wantto make sure some money stays in Japan," the person said.

Las Vegas Sands did not respond to a request for comment onthat meeting and did not make executives available forinterviews. The person who told Reuters about the meeting alsodeclined to be identified as they are not authorised to speak tothe media.

ROLE MODEL

Japan is widely viewed as a prize market for casinooperators due to its wealthy population and proximity to China,home to some of the world's most prolific, and wealthiest,gamblers. Brokerage CLSA estimates Japan could be the world'sthird biggest gambling market after Macau and the United States,raking in revenues of at least $40 billion annually and withmany more years of growth before it starts to mature.

After more than a decade of deliberations, the chances havenever been higher that Japan will move to allow casinos. Ifparliament approves the initial bill, as expected, bureaucratscan then start working on concrete laws that would beincorporated in a second bill proponents aim to pass in 2015.

If the legislation is approved, Japan may see its firstcasino in time for the 2020 Tokyo Olympics, which would attractmore big-spending Chinese gamblers and help boost an economystruggling with deflation and sluggish growth.

The developments in Japan come as U.S. operators and Asianplayers like Genting Bhd, Melco Crown Entertainment and Galaxy Entertainment Group are settingup large-scale integrated resorts across Asia to emulate thebooming revenues generated in Macau and Singapore.

Adelson's success in building casino resorts in bothlocations gives him an advantage in Japan, where lawmakersconsider his Singapore-based Marina Bay Sands - which combines amulti-floor casino with a luxury hotel, convention space andhigh-end shopping mall - as the benchmark.

Adelson is also banking on Sands' ample finances and itscompetitor-dwarfing $66 billion market capitalisation asdifferentiating factors. "We can spend 10 billion dollarswithout borrowing money. They can't," he said in Tokyo.

But capital is unlikely to be a major constraint for casinooperators given that banks will be eager to lend to such apromising business, with the first round of licenses likely tobe limited to Tokyo and Osaka, said Aaron Fischer, a CLSAanalyst. He said political connections could also play animportant role.